Irish Takeover Panel Publishes Proposed New Takeover Rules
The Irish Takeover Panel Act 1997, Takeover Rules 2013 (the “Rules”) and the Substantial Acquisition Rules 2007 (the “SARs”) regulate the conduct of takeovers and other relevant transactions of public limited companies or other bodies corporate incorporated in Ireland whose securities are currently being traded, or were traded within the previous five years, on Euronext Dublin, the London Stock Exchange, the New York Stock Exchange, Nasdaq and regulated markets in the EU.
On 21 December 2021, the Irish Takeover Panel (the “Panel”) released a public consultation paper seeking comments on proposed amendments to the Rules and SARs. The Panel indicated that the primary purpose of the proposed amendments was to update the Rules and SARs to take account of developments in takeover practice and changes in relevant legislation that have occurred since the Rules and SARs were published. The consultation closed on 28 February 2022.
On 20 May 2022, the Panel published a response statement together with draft new Takeover Rules which the Panel is proposing to adopt.
Arthur Cox made a number of observations on the consultation, many of which have been taken on board in the revised draft Rules.
The Panel has indicated that the new Rules will be published in due course. The following points are of note:
Mandatory Identification of Bidders and Put Up or Shut Up (“PUSU”)
The most significant amendment to the Rules is the proposed adoption of a revised PUSU regime, which is largely (though not entirely) aligned with the equivalent regime in the UK.
The PUSU regime is designed to bring to an end the uncertainty and siege that may exist in respect of an offeree company as a result of the announcement of a possible offer for that company. This results in particular from the operation of Rule 21, which prevents the offeree from taking any action which might frustrate an offer or possible offer, which can curtail the offeree’s normal business operations. The current PUSU regime provides the Panel with the discretion to impose a time limit of its choosing by which a bidder must clarify its intentions. Under the current regime, the Panel’s discretion is only exercised at the request of the offeree, once the bidder has been publicly identified.
Following the consultation, the Panel confirmed that it will implement a mandatory PUSU regime in Ireland, but it has also accepted certain proposals arising from the consultation.
Under the proposed new regime, any announcement by an offeree which commences an offer period must identify any potential bidder with which the offeree is in talks or from which an approach has been received. Bidders will have a period of 42 days (rather than 28 days as had been initially proposed by the Panel and is the case under the UK Takeover Code) following the announcement in which they are first identified to announce a firm intention to make an offer or announce that they do not intend to make an offer, in which case they will then be restricted from making an offer for the offeree for 6 months (rather than 12 as had been initially proposed by the Panel).
In the Panel’s view, the new PUSU regime will reduce any tactical advantage which unwanted and hostile bidders would otherwise have over offerees in that offerees will be subject to a shorter period of uncertainty and disruption prior to a formal offer being announced. Offerees and other market participants would also have a greater degree of certainty over the duration of that period. The requirement for the board of the offeree to make a potentially difficult and contentious decision as to whether to identify a potential bidder and/or to request the Panel to impose a PUSU deadline, has also been removed, although an offeree may request the Panel to extend the PUSU deadline in appropriate circumstances (e.g. where negotiations are ongoing).
Disclosure of Opening Positions
The current disclosure regime under the Rules is based on “dealings” undertaken by persons subject to the regime which take place during an offer period and not “positions” held by them. The revised Rules introduce opening position disclosures, modelled on the UK Takeover Code. The rationale for the change is to provide greater transparency as to where voting control of relevant securities lies, even where no, or limited, dealings occur during an offer period.
Changes to require opening position disclosures will be of relevance market-wide. The bidder, offeree, any person who is interested in 1% or more of any class of relevant securities of the bidder or offeree and exempt principal traders connected with a bidder or offeree (which do not benefit from recognised intermediary status) must now disclose details of any interests or short positions in any relevant securities of the parties at the commencement of an offer period and, if later, after an announcement that first identifies a bidder. Disclosure obligations in relation to dealings which occur following the commencement of the offer period will continue as before, largely unchanged.
The current Rule on profit forecasts has been completely revised and, in general, the new regime aligns more closely with the UK Takeover Code.
The revised Rule also sets out updated reporting requirements in respect of quantified financial benefits statements (“QFBS”). A cash bidder will not be required to have any profit forecast or QFBS reported upon. Significantly, statements by the offeree quantifying any financial benefits expected to accrue to the offeree from cost saving or other measures and/or a transaction proposed to be implemented by the offeree if the offer is withdrawn or lapses now constitute a QFBS, which was not previously the case.
The Panel may consent to waiving the generally applicable requirement for reports from reporting accountants and financial advisers in relation to prospective financial information where it is established that the information in question is included in a document in order to comply with the requirements of applicable law or regulation. This waiver will also be available where the forecast is necessary to comply with requirements of a regulator (e.g. SEC), as well as to satisfy an applicable law/regulation.
Strategic Review Announcement Triggers Offer Period
The Panel will treat a strategic review announcement which refers specifically to an offer as one of the options to be considered under the strategic review, as commencing an offer period in relation to the relevant company. This approach aligns with existing practice but was not previously expressly referenced in the Rules.
The regime under the revised Rules for the redemption or purchase of own securities by an offeree has been reframed slightly, but generally aligns with the existing regime and practice.
The implementation and continuation of share redemption and buyback programmes will now be assessed exclusively under Rule 21, rather than Rule 4 as was previously the case. Rule 21.1 now contains a specific provision allowing an offeree to continue an existing buyback programme pursuant to an existing contract without seeking the consent of the Panel.
The Panel has also included a new note to Rule 21 which provides that, subject to consultation, the Panel may consent to an offeree continuing a previously announced share buyback programme which has not yet been partly or fully implemented provided the programme continues in accordance with the previously announced timeline and parameters and may also consent to an offeree renewing a share buyback programme the timing and parameters of which are in accordance with its normal practice for share buyback programmes.
Euroclear Bank and Dematerialisation
The Panel has proposed a number of technical amendments to the Rules intended to reflect changes in process arising as a result of the migration of Irish corporate securities to the Euroclear Bank securities settlement system in 2021. In particular, new processes regarding acceptance of tender offers have been introduced which are intended to facilitate underlying shareholders in accepting tender offers through the Euroclear Bank system.
In addition, under the revised Rules, where a bidder purchases shares in the market and those shares are held through Euroclear Bank, DTC or another settlement system, the bidder will need to either: (a) withdraw those shares into registered form; or (b) accept the offer with those shares through the Euroclear, DTC or other settlement system in order to count the shares towards the acceptance condition.
The EU Central Securities Depositary Regulation (“CSDR”) requires that newly issued securities of listed companies admitted to trading in the EU be held in dematerialised (i.e. book entry) form by 1 January 2023 and all existing transferrable securities of listed companies admitted to trading in the EU must be held in dematerialised form by 1 January 2025.
While Irish proposals in relation to the implementation of this element of CSDR remain a work in progress, it is anticipated that shareholders holding Irish shares outside of book-entry transfer facilities will remain on the issuer’s register of members, however share certificates will cease to be evidence of title to Irish shares and instead legal title to Irish shares will be evidenced by a registrar’s statement or receipt, or by investor code or shareholder reference number.
In an attempt to future-proof the acceptance procedures for tender offers to account for dematerialisation, the revised Rules provide that a shareholder may provide evidence of identification numbers or codes in lieu of share certificates, where applicable.